Answer with yes or no for both questions Exercise 175 Lean Inc. budgeted to prod

Question

Answer with yes or no for both questions

Exercise 175 Lean Inc. budgeted to produce 10,000 widgets during 2016. Lean has capacity to produce 12,000 units. Fixed factory overhead is allocated to production. The following estimated costs were provided: Direct material ($7/unit) Direct labor ($15/hr. x 2 hrs./unit) Variable manufacturing overhead ($3/unit) Fixed factory overhead costs ($5/unit) Total Cost per unit =$45 70,000 300,000 30,000 50,000 $450,000 Lean received an order for 1,000 units from a new customer in a country in which Lean has never done business. This customer has offered $44 per widget. Should Lean accept the order? Lean received an offer from another company to manufacture the same quality widgets for $39. Should Lean let someone else manufacture all 10,000 widgets and focus only on distribution?

Explanation / Answer

1. Yes. Hain incremental profit per widget $4.

Incremental revenue per widget=$44

Incremental cost per widget($7+($15×2)+$3)=$40

Incremental profit per unit=$4 per widget

2. Yes.

Incremental cost to Buy=$39

Incremental cost to make=$40

Incremental saving if buy=$1 per widget

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